The European Commission, on June 11, announced that it is investigating whether individual transfer pricing rulings granted to Apple in Ireland, Starbucks in the Netherlands, and Fiat in Luxembourg sanctioned the allocation of too little profit to activities in those countries, thereby amounting to illegal state aid. The Commission has also initiated an infringement action against Luxembourg in connection with the matter.
The decision is part of a wider investigation into whether tax rulings and patent box regimes that provide excessive benefits to multinational firms are permitted under EU law.
“Under the EU’s state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the member state were applied in a fair and non-discriminatory way,” explained EU antitrust chief, Joaquín Almunia.
The Netherlands transfer pricing ruling provided to Starbucks Manufacturing EMEA BV may have given that company “a selective advantage because there are doubts whether it is in line with a market-based assessment of transfer pricing,” the Commission said. The Commission added that it does not expect to find systematic irregularities with Netherlands rulings.
A Luxembourg private ruling may have sanctioned the understatement of the taxable basis in Luxembourg for the financing activities of Fiat Finance and Trade, the Commission said. The Commission said it has initiated infringement proceedings against Luxembourg because of the country’s failure to provide it with information needed to investigate the country’s private ruling practices and its patent box regime.
The Irish tax authority ruling in question may have allocated too little taxable profit to the Irish branches of Apple Sales International and of Apple Operations Europe, EU, the Commission said. During the period when the ruling was issued, Irish tax officials exercised “a significant degree of discretion” in handling transfer pricing matters; the investigation concerns whether “such discretion has been used in the case of Apple to grant a selective advantage to that company, reducing its tax burden below the level it should pay based on a correct application of the tax rules,” the Commission said. The Commission noted that Ireland’s transfer pricing rules have “been tightened” since that ruling was granted.
Responding to the decision, an Irish Department of Finance spokesperson said that Apple “did not receive selective treatment and there was no special tax rate deal.” Ireland is “very confident” it will successfully defend its position because Ireland does not have a statutorily binding tax ruling system. If necessary, though, Ireland will defend it position in European court, the spokesperson said.
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-Update: The Luxembourg Finance Ministry, in a June 12 statement, said it would continue to defend against the Commission’s charges of illegal state aid, and said it still has doubts about the legality Commission requests for information, see statement.
